Back in February 2011, I posted an article about 9 dividend stocks that would do well in 2011. Since I like to be held accountable, I thought of coming back to those stock picks to see how they performed (just to validate my crystal ball before I use it again for 2012!).
I calculated the yield between Jan 7th 2011 and Jan 6th 2012 and here’s what we have:
Ticker Market 2011 Return Dividend Yield
NUE NYSE -6.05% 3.38%
T NYSE 1.02% 5.85%
DRI NYSE -4.51% 3.73%
JNJ NYSE 4.82% 3.51%
HSE TSE -8.63% 4.93%
NA TSE 5.41% 3.88%
MMM NYSE -3.39% 2.56%
INTC NASDAQ 20.07% 3.12%
WEC NYSE 17.19% 3.54%
Average 2.88% 3.83%
As you can see, these stock picks made a 2.88% return while providing a 3.83% for the upcoming year. This is pretty good considering that the US stock market was flat in 2011 and the Canadian market was seriously down. I know, I know, I have 2 stocks that have skyrocketed (INTC and WEC… which is part of my 2012 Best Dividend Stock eBook). It does boost my overall return but my worst pick is one that has only fallen by 8.63% which is not too bad either (considering its healthy dividend!).
So I think that my crystal ball worked pretty well after all! I think I’m ready for another round, don’t you agree?
So we will review each sector and I’ll take a shot with 1 pick per sector again. Since I have 50% of my readership in Canada, I’ll do 1 pick per market (US and CDN). Let’s see if I can do better than last year 😉
Basic Materials NEM (US) & VNP (CAD)
Precious metals and chemicals have caught the attention of many investors again in 2011. While the price of gold has suffered a big drop from its peak, it has still finished +11% ytd. We saw a very interesting way to determine dividend payout in this industry. Newmont Mining (NEM) has decided to link its dividend payout to the price of gold. This is why it pushed its dividend by 133% in a single year to a 2.32% yield. So if you think that the price of gold will continue rising in 2012 (which wouldn’t be surprising due to the uncertainty on the stock market), NEM could be interesting. On the other side, you might as well look for gold ETFs if you are looking for growth. My Canadian pick for this industry will not be a dividend payer. I think that 5 N Plus (VNP-TSE) will kill it this year. The stock is now trading at a P/E ratio of 9.38 and has perfectly integrated their recent acquisition (MCP).
Communications VZ (US) & T (CAD)
The communications industry has been strong with shares buyback in 2011. Companies such as CBS (CBS-US), Viacom (VIAB-US) and Disney (DIS-US) have increased their buyback programs by 1,5, 6 and 16 billion while increasing their dividend at the same time. They definitely don’t know what to do with their cash ;-). My US pick for 2012 is Verizon due to the fact that it will definitely bump its dividend up to reach AT&T’s (T-US) yield. VZ is almost 1% behind AT&T and has a habit of staying closer than that. On the Canadian side, Telus remains one of my favorite stocks. Click on my Telus stock analysis to know why.
Consumer, Cyclical MCD (US) & GH (CAD)
It could be a rough time for cyclical companies since most of them have continued to increase their dividends significantly without breaking any records in terms of earnings. This leads to slightly higher dividend payout ratios that we are used to having. This trend should continue in 2012 as we don’t know where the economy is truly heading over the short term. This is why I’ve picked 2 companies that should do well due to their respective strengths. McDonald’s (MCD) has prime locations around the world and everybody likes good burgers and fries. Gamehost (GH) will continue to benefits from the oil sand boom in northern Alberta, Canada. I am convinced that the oil sand rally is not over and this is why this hotel & games company should continue to do well in 2012.
Consumer, Non-Cyclical KO (US) & WN (CAD)
You can always count on a solid dividend perspective when you consider consumer, non-cyclical stocks. While the yield is often lower than other sectors, the dividend policies oriented by the companies’ ability to manage their cash flow make them predictable. As a dividend investor, I surely like that! I like Coca-Cola since they are a very strong dividend payer and count on them to continue increasing their dividend in 2012. As for Weston (WN), their recent profit jump (up by 50%) and their current strategy of growth by acquisition lead me to think that they are not done surprising analysts yet.
Energy COP (US) & ENB (CAD)
Depending which type of energy you are looking at, you may see a huge difference in perspective. In fact, while the price of natural gas collapsed in 2011 (-55%), oil rallied almost 8%. I think that we are not done seeing the barrel of oil climb and the competition to attract investors with high dividend yield or strong dividend increases (such as Valero (VLO) with 200% increase) is not done either. I’ve hesitated between taking CVX (which I hold) and COP. I pick COP for 2012 due to a bigger dividend increase in 2011. On the Canadian side, while I hold HSE, I think that ENB will do well. It’s a less volatile stock and has shown a 5 yr annualized dividend increase of 11% and EPS has been over 10% for the past 5 years as well.
Financial BLK (US) & NA (CAD)
This is finally the “back to normal” mode in the financial industry in the US. While Canadian banks are still adulated (which leads to a bit of scepticism from some), US banks are heading back to the dividend route. For the most part, they follow the FED guidelines of a 30% payout in dividends and 60% when you add buybacks to the equation. However, my worries are not over when it comes to US banks. They still have to face the Euro debt crisis in a shaky US economic environment. I chose BlackRock because of its strong position in the world of ETFs and financial advice. As for National Bank, I think they will continue to show their great potential in 2012. Their current strategy is being well executed and is making great breakthroughs in high net worth client management.
Industrial LMT (US) & CVL (CAD)
At the beginning of the year, the market was optimistic about industrials due to strong ISM manufacturing numbers. Unfortunately, this trend didn’t continue in the other half of the year and led to downgraded company earnings expectations. You have several great companies in the industrial sector but I’ve decided to go with Lockheed Martin for its solid dividend metrics and steady growth. On the Canadian side, I picked a small company, Cervus Equipment, which shows strong metrics as well. Cervus is the largest group of John Deer equipment dealers in Canada and has a significant presence in both the industrial and construction equipment segments.
Technology INTC (US) & BCE (CAD)
This has been a great years for techno in general. Even for those who don’t pay dividends. The interest for investors in techno stocks is growing rapidly due to their high levels of cash. As a result of this situation, several companies have increased their dividends significantly in 2011: AVGO, CAN, HPQ, INTC, SLH, ORCL and MSFT just to name a few. There are many sources of growth for them again in 2012: emerging markets, new markets (such as tablets and smartphone evolution), cloud computing, etc. I’m a sucker for INTC since I bought it last summer and have made over 25% returns on it ;-). My Canadian pick is BCE. I know it’s a telecom, but there aren’t many techno stocks that pay dividends in Canada…
Utilities WEC (US) & FTS (CAD)
Investing in utilities in the US is almost like investing like bonds. They all pay steady dividends and show stable growth. In a highly volatile market (as we will continue to experience in 2012), utilities are the flagship of stability among all equities. On top of that, their average yield in 2011 was 4.09%. Can you find any bonds able to pay such high interest? However, don’t sell all your stocks to go towards utilities. The overall dividend payout situation may be unsustainable for some companies. This is why you have to select your picks carefully. Mine are Wisconsin Energy (WEC) and Fortis (FTS).
Get my Full Analysis on Most of these stocks for free
At the beginning of the year, I compiled a list of 32 Best 2012 dividend stocks and wrote an eBook out of it (click here to read more about it). If you are interested in the above mentioned stocks, I’ve covered many of them in this book:
US: COP, BLK, LMT, INTC, WEC
CDN: T, GH, NA, BCE
Disclaimer; I hold shares of T, NA, INTC, KO, VNP
You certainly did no worse than most stock pros and as long as you don’t sell those losses aren’t really losses. At 3.83% you are picking up a pretty nice dividend in today’s mega low interest environment.
I like your 2012 picks as well and plan to do some further research. I think the U.S. economy at least might be recovering a bit and that will bode well for the likes of MCD, INTC and LMT.
Hey Money Infant,
I’m taking more risks this year with 18 stock picks instead of 9… let’s see how I can handle it ;-). At least, I beat the market in 2011 with my picks!
I’m pretty confident that US economy will continue to grow at a slow pace but still, growth is growth, right?
I am really looking at BCE once I work up the capital to buy again. I have heard about it for a while and really want in. Thanks for the research.
I’ve been thinking about MCD for a while now. I’ll set some cash aside and jump in when it pulls back a bit. Nice picks.
Kanwal Sarai @ Simply Investing
Well done, you’ve got some great stocks in that list.
I am considering WN.
Great post TDG!
I like BCE, Fortis and MCD, although I really hate that withholding tax on my US dividends, hence my limited US stocks! Good article Mike.
why don’t you put your US stocks in your RRSP? this is the only place where you can avoid the withholding taxes 🙂
Right you are, but you still pay the 15% in your TFSA?
Yes, the 15% withholding applies in the TFSA. On the other side, if you keep your investments long enough, you won’t be paying taxes on the capital gain… which is not that bad 😉